Australia’s plans to reform the Federation

State premiers are split over Prime Minister Tony Abbott’s plans to reform the Commonwealth-state relations, which could include changes to elements of the tax system including GST.

Mr Abbott’s call for a mature public debate on the issue has coincided with the release of a new report from the Committee for Economic Development of Australia (CEDA) on the Federation.

On Saturday, Mr Abbott issued a call to arms to his state counterparts, arguing that states including NSW, Victoria and Western Australia that receive less GST back than they pay into the Commonwealth coffers, need to receive “a fair go” and calling for a rational reform debate.

Mr Abbott said that “it should be possible to make these arrangements more equitable between the larger states with the smaller states no worse off”.

The Prime Minister said that “rethinking the conventions about which level of government is responsible for the delivery of particular services or the revenue measures to which particular levels of government should have access will require a readiness to compromise … in our highly partisan system.”

CEDA’s report, A Federation for the 21st Century, released on Monday, has recommended creating a national reform council to monitor serious suggestions for reform to the Federation, and to ensure that progress is made on those reforms.

But it also reminds Australians that any changes to the GST regime will be harder than they realise.

“Because the Commonwealth has agreed that the rates of GST will not be changed without the consent of the states and territories, which receive all GST revenue, it cannot alone decide the fate of GST,” the report says.

It says debate has increased about the manner in which GST revenue is distributed among the states because of the “lopsided growth of the economies of the states during the resources boom’.”

In question time on Monday, the Prime Minister was under sustained pressure from the opposition to declare there would be no change to the GST.

“Given the PM has broken so many promises he made before the election, when will he break his promise that the GST is not going to change?” Opposition Leader Bill Shorten asked.

But Mr Abbott said the Parliament should be able to have a “sensible, mature” debate about the GST as part of the federation reform and tax reform process.

“My hope is that just for once it might be possible to have a debate rather than a screaming match,” Mr Abbott said.

“That is my hope, that just for once it might be possible for us in this Parliament, one side and the other, the national government and the state and territory governments to have a mature debate rather than a screaming match.”

A fair share

Victorian Liberal Premier Denis Napthine, who heads to the polls in about a month, lashed out at Mr Abbott as he declared his opposition to any GST hike and argued Victoria simply wanted a fairer share of the tax.

“What I say to Tony Abbott very clearly – show us the money, show us your bona fides. If you are serious about reforming the federal tax system give Victoria its fair share of GST. That’s what we need,” he told Fairfax radio.

Dr Napthine said Victoria was being short changed on its share of GST, only receiving 88 cents in the dollar, compared to Queensland, which received 106 cents.

“We are happy to have a review of federalism but it has to be fair dinkum and show us the money.”

He said he was not interested in any increase in GST.

And on Monday morning, South Australian Labor Premier Jay Weatherill called on the Abbott government to reinstate $80 billion in health and education funding cut from state government budgets by the Commonwealth in Treasurer Joe Hockey’s first budget.

“Philosophically I’m opposed to a taxation [system] that places the lion’s share of the burden on those who can least afford it,” he said.

Mr Weatherill defended the existing GST distribution formula of horizontal fiscal equalisation, which ensures all states and territories have a similar level of services in areas such as health.

And he contradicted Mr Abbott, declaring it was “not possible to make it [the tax system] more equitable without somebody losing”.

Mr Weatherill also lashed Western Australia for seeking to “cut themselves adrift” after being a “beggar state” for decades.

NSW Premier Mike Baird said his state welcomed the Prime Minister’s push to reform the federation.

“As I’ve made the point previously, the status quo in areas like health is not sustainable as state budgets do not have the capacity to go it alone,” he said.

“NSW strongly supports the white papers established into reform of the federation and the tax system, and will be an active and constructive participant in this process.”

“We need to clearly define which levels of government should deliver education in schools and universities and health services in hospitals, as well as who should provide the roads, rail, ports, electricity and water supplies that are essential to our future prosperity,” Mr Newman said.

“There are far too many areas where federal and state responsibilities overlap and create waste, duplication and confusion.”

Mr Barnett contradicted Mr Weatherill, arguing that the GST distribution formula did need to be fixed.

“I welcome the Prime Minister’s comments, in particular around the need for reform to the GST distribution, recognising as I have always said that long-term change will involve some compromise,” he said.

“WA remains willing to engage and contribute. However, we remain of the view that there can be no meaningful discussion on increases to the rate or base of the GST until the distribution model is fixed.”

In 2014-15, NSW will receive 97 cents for every dollar of GST it pays, Victoria will receive 88 cents and WA will receive just 37 cents. All other states and territories receive more revenue back from the Commonwealth than they pay into the federal pot.

Opposition leader Bill Shorten warned Australians would face new or increased taxes – and funding cuts to schools and hospitals – under the reforms Mr Abbott had flagged.